TL;DR
UK contractor expenses through a PSC must be wholly, exclusively and necessarily for the business under section 34 ITTOIA 2005 (sole traders) or section 1298 CTA 2009 (companies). This guide covers allowable categories, mileage rules, and home office.
Key facts
- Wholly, exclusively and necessarily test for company expenses.
- Mileage at 45p first 10,000 miles, 25p above.
- Home office: simplified GBP 6/week (no apportionment of utility bills under simplified).
- Professional fees and accountancy fully deductible.
- Subsistence on business travel: reasonable cost deductible.
- Training fees: deductible if maintaining existing skills, not new qualifications.
- Laptop, equipment: capital allowances under AIA.
- Business meals with clients: typically not deductible (entertainment).
UK contractor expenses through a PSC must be deductible by the company at the corporation tax rate. The rule is similar to sole trader 'wholly and exclusively' but with an additional 'necessarily' element for employee expenses. Director-shareholders fall under the company expense rules with the necessarily test applying.
This guide covers the main expense categories, the mileage allowance, home office rules, and the common edge cases.
The wholly, exclusively and necessarily rule
Section 1298 of the Corporation Tax Act 2009 requires company expenses to be incurred 'wholly and exclusively' for the purposes of the trade. For employee expenses (which includes the director-shareholder of a PSC), section 336 ITEPA 2003 adds the 'necessarily' element - the expense must be necessarily incurred in the performance of the duties.
The 'necessarily' test is stricter than 'wholly and exclusively'. An expense the director chooses to incur (a nicer office chair, an upgraded laptop above basic functional level) may pass the W&E test but fail the 'necessarily' test. HMRC's view in EIM31650 and following sets out the case law (Ricketts v Colquhoun 1926 onwards).
In practice, HMRC takes a reasonable view of contractor expenses. Standard business tools (laptop, professional indemnity insurance, accountancy fees, business mobile phone) are accepted. Luxury or marginal items (premium office furniture, expensive headphones beyond functional need) may be challenged.
Worked example: a contractor buys a GBP 1,500 laptop for work. The cost is clearly necessary for the work. Fully deductible. The contractor also buys a GBP 400 chair specifically for the home office. The chair is functional and necessary for the home office; deductible. The contractor buys a GBP 1,200 designer chair instead. HMRC may accept the standard chair (GBP 400) as necessary and challenge the GBP 800 premium element as not 'necessarily' incurred.
Travel and mileage
Business travel between client sites, between the home office and a temporary workplace, and travel for client meetings is deductible. Travel to a 'permanent workplace' (typically defined as a place where the contractor works for 24 months or more) is treated as commuting and not deductible.
The 24-month rule (section 339 ITEPA 2003) is important for contractors. A contract that runs more than 24 months at the same client site converts the site to a permanent workplace, ending the deductibility of travel to it. The rule applies prospectively - travel before the 24-month threshold remains deductible.
Mileage allowance: 45p per mile for the first 10,000 business miles in a tax year, 25p per mile thereafter. Motorcycles 24p; bicycles 20p. The mileage rate covers all running costs (fuel, insurance, MOT, repairs, depreciation). Alternatively, actual costs can be claimed apportioned to business use.
Worked example: a contractor travels 8,000 miles to client sites in a tax year. Mileage allowance GBP 3,600 (8,000 * 45p). The PSC pays the contractor GBP 3,600 as a tax-free mileage allowance under section 230 ITEPA 2003. The company deducts the GBP 3,600 as a business expense.
Home office and the simplified rate
Home office expenses for a contractor working partly from home are deductible. Two methods: actual costs apportioned (a percentage of utilities, mortgage interest or rent, council tax, broadband, repairs) using a reasonable basis like floor area times time used. Simplified expenses: flat rate of GBP 6 a week (or GBP 312 a year) for any business use of home.
The simplified GBP 6/week is the practical choice for most contractors. It avoids the apportionment calculation and provides a defensible deduction without complex evidence. For contractors with high home-office usage (full-time from home, dedicated office room), actual costs may produce a larger deduction but require detailed records.
Business broadband can be claimed separately from the simplified home office allowance. Where the broadband is in the company name and used wholly for business, full cost deductible. Where personal/business split, an apportionment applies (typically 50-70% business for a contractor working from home half the time).
Worked example: a contractor works from home 3 days a week. Simplified home office: GBP 312/year. Business broadband apportioned 60% business: GBP 360/year. Total home-related deduction GBP 672/year. The calculation is simple and defensible.
Subsistence and accommodation
Meals during business travel are deductible at 'reasonable' cost under HMRC's EIM05231 guidance. Hotel breakfast and dinner included in the hotel rate, standard restaurant meals during business trips, and reasonable cafe purchases during travel are all generally accepted. Excessive or luxury dining may be challenged.
Accommodation during business travel is fully deductible. Standard hotels, serviced apartments for longer trips, B&Bs are all acceptable. Five-star luxury hotels may attract HMRC scrutiny on the necessarily test if standard alternatives existed.
Business entertainment - meals with clients to entertain or develop relationships - is NOT deductible from corporation tax (section 1298(2) CTA 2009 excludes entertaining expenses). The company can pay the cost but it sits as a disallowable expense not reducing CT. Personal entertainment is the contractor's own cost from post-tax income.
Edge case: business meals during travel where the contractor is alone (or with colleagues but not entertaining clients) are deductible. The entertainment exclusion applies specifically to entertaining clients, suppliers, or other external parties. Internal staff meals on business trips are not entertainment.
Training, professional fees, and other categories
Training fees are deductible where they maintain existing skills relevant to the trade. Annual continuing professional development, certification renewals, refresher courses - all deductible. Training for a new qualification or wholly new skill is typically not deductible (the expense relates to a new income stream rather than maintaining the existing trade).
Professional subscriptions (ICAEW, BCS, CISI, professional bodies relevant to the contractor's trade) are deductible. The subscription must be on HMRC's approved list at gov.uk for the deduction to apply without further evidence. Most major UK professional bodies are on the list.
Software subscriptions, hosting, professional indemnity insurance, accountancy and legal fees, bank charges on business account are all standard PSC expense categories. Each is deductible at the company level.
Marketing: business cards, website costs, online advertising for the contracting business, networking events with clear business purpose are deductible. Business gifts up to GBP 50 per recipient per year (above this they become entertainment with the consequences above).
Capital expenditure: laptops, vehicles, equipment
Capital expenditure on plant and machinery falls under capital allowances rules. The Annual Investment Allowance gives 100% first-year deduction up to GBP 1 million per year for qualifying expenditure. Most PSC contractors' capital spend (laptops, monitors, professional equipment) is well within the AIA cap and fully deductible in the year of purchase.
Cars are treated separately from other plant and machinery. A car emits CO2 above 50g/km has 6% writing-down allowance; below 50g/km has 18% WDA. Electric cars qualify for the first-year allowance at 100% under specific rules. The personal use proportion is excluded from the company claim.
Full expensing of plant and machinery (introduced from April 2023 for limited companies) provides 100% deduction without the AIA cap. The relief sits alongside the existing AIA and gives certainty for larger capital programmes. Most PSC contractors' capital spend remains within the AIA so full expensing is a backup for unusual cases.
Worked example: a PSC contractor buys a GBP 1,500 laptop and a GBP 600 monitor in the same year. Both qualify for AIA at 100%. Total deduction GBP 2,100 in the year of purchase. Corporation tax saving at 19% = GBP 399.
Disclaimer
This article provides general information based on rules and figures published by UK government and regulator sources as of May 2026. It is not personal financial, legal, immigration or tax advice. Rules, fees and figures change and individual circumstances vary. Readers should check primary sources or consult a qualified, regulated adviser before acting on any information here.
Frequently asked questions
What expenses can a UK contractor claim?
Business expenses incurred wholly, exclusively and necessarily for the business: business travel, equipment (laptop, software, tools), professional fees (accountancy, legal, PI insurance), training to maintain existing skills, business mobile and broadband (apportioned), home office (simplified GBP 6/week or actual apportionment), professional subscriptions to approved bodies. The 'necessarily' test for employee expenses is stricter than the 'wholly and exclusively' rule for self-employed.
Can I claim mileage on my contractor expenses?
Yes through the PSC at 45p per mile for the first 10,000 business miles in a tax year, 25p above. The rate covers all running costs (fuel, insurance, MOT, repairs, depreciation). Alternatively, actual costs can be claimed apportioned to business use. The PSC pays the contractor as a tax-free mileage allowance under section 230 ITEPA 2003 and deducts the same amount as a business expense.
How do I claim home office expenses?
Simplified GBP 6/week (GBP 312/year) for any business use of home is the easy method. Actual costs (proportion of utilities, rent or mortgage interest, council tax, broadband) require apportionment calculation using a reasonable basis. Business broadband can be claimed separately from the simplified home office allowance, apportioned by business use percentage.
Are client meals tax-deductible?
No. Business entertainment - meals with clients, suppliers or other external parties - is specifically excluded from corporation tax deduction under section 1298(2) CTA 2009. The PSC can pay the cost but it sits as a disallowable expense not reducing CT. Business meals during travel where the contractor is alone or with internal colleagues (not entertaining external parties) are deductible as subsistence.
What's the 24-month rule for contractor travel?
Under section 339 ITEPA 2003, travel to a temporary workplace is deductible. After 24 months at the same client site, the site is treated as a permanent workplace and further travel becomes non-deductible commuting. The rule applies prospectively - travel before the 24-month threshold remains deductible. Most short-to-medium contracts stay within the 24-month limit; long-running engagements at one site need monitoring.